As Farmland Prices Soar, It’s Not Just Farmers Buying

December 22, 2011 | 7:45 AM

To bring one of their herds in for the winter, the Isaak family lured in the cows and calves with hay, then gathered them together in a makeshift corral.

Across the U.S., the price of good quality cropland is soaring, and it’s not just farmers who are driving demand. In an unsteady economy, investors are looking to farm ground as a safe haven. Prices have been highest in the Midwest Corn Belt. Here in Idaho, demand is centered in the Snake River Plain, where farmland has reportedly sold for as much as $10,000 an acre. That’s more than double average values just a few years ago.

As Farmland Prices Soar, It’s Not Just Farmers Buying
The sun is setting over open pastureland not far from the southeast Idaho town of American Falls. Farmer LaMar Isaak, along with his wife, son, mother and brother, has corralled a small cattle herd – except for one skittish calf. Now, it’s a waiting game. “He may win,” Isaak says. “Kind of looks that way right at the minute. He’s spooky, huh, Mom?”

Just then, the calf takes a few hesitant steps forward, into the corral. Isaak shouts to his son, “Okay, push them in, Conrad!” The Isaaks rush to close the gates.

Molly Messick / StateImpact Idaho

LaMar Isaak has spent his whole life farming in the Snake River Plain. In 1980, his father handed down 75 acres of farm ground. Since then, the Isaaks have expanded. They grow sugar beets, alfalfa, and wheat on more than 3,500 acres. Appreciating land values might sound like a good thing, for someone with that much ground. But in recent years, LaMar Isaak has watched with dismay as the price of local farmland has skyrocketed. “It’s getting tougher. And tougher and tougher,” he says. “For a small farmer or a family farmer.”

Tougher, he says, because at current prices, land is hard to buy. Usually, the price of farmland is tied to how much a farmer can make on that ground. But right now, Isaak says, the prices don’t make sense. “When we sit around the family table, it’s virtually impossible to pencil that property out other than – it’s an investment and you hope it goes up. If it doesn’t, you’ve probably got problems.”

The Isaaks would like to buy more land and build the family farm, but at current prices, they’ll sit tight. That’s not a decision that will have a measurable effect on the market. In a global economy that offers few stable places to invest, there are strong arguments for agriculture.

Molly Messick / StateImpact Idaho

Appraiser and real estate broker Henri LeMoyne says he's seen many newcomers to the Idaho farmland market in recent years.

“Right now, we look pretty good!” says Henri LeMoyne, an appraiser and real estate broker based in Twin Falls. After nearly forty years in the business, LeMoyne knows as much as anyone about demand for Idaho farmland. He says that as global food demand keeps crop prices high, there’s a new group of investors interested in owning ground. “Within the last two years, we’ve had quite a number of funds that are representing individual investors or groups of investors, and that’s different to this area and I think agriculture in America period. They’ve definitely added a lot of demand for farmland.”

LeMoyne describes these new investors as “yield-driven.” That’s a polite way of saying they’re looking for profit. Here’s how it works: they pay cash – say $7,000 an acre – for big swaths of farmland. Then they turn around and rent it back to local farmers, asking maybe $350 per acre per year. Just like that, they’ve secured a steady five percent return. Charlie Bryan oversees farmland acquisition in the Northwest for UBS AgriVest, a subsidiary of the Swiss global finance giant. “What was not attractive on farmland over the past 20 years is – boy, we had investments that are only returning five, six percent on an annual income basis,” he says.

Compared to stock market returns in the double digits, that wasn’t much. But these days, a predictable five to six percent is hard to come by. “When everything collapsed or declined in the last couple of years, we were really the heroes because not only did we not have declines, but we just stayed very steady.”

Charlie Bryan manages about $100 million worth of ag land investments out of his tidy office in a downtown Nampa strip mall. He’s old-school, in the world of farmland investing. AgriVest began buying up high quality farmland decades ago, working on behalf of pension funds. Like Henri LeMoyne, Bryan has noticed the market’s newcomers. In his view, some of them might not know what they’re getting into. “What I’m seeing is a lot of people – institutional investors that may not have experience in this – are getting a little too excited about the whole thing.” he says. “And some are buying farms that I’ve already passed on.”

High prices, exuberant interest, questionable buys – these sound like the makings of an investor-fueled farmland bubble. But the picture is a bit more complex. LaMar Isaak may not be buying at current prices, but some farmers are. With his brother, Kenneth, Klaren Koompin runs Koompin Farms, a 17,000-acre operation in the Snake River Plain. They’re not buying, either. But Koompin says, lately, the highest prices have come out of farmer-to-farmer sales. “The private individual is outbidding, now, the institution, because they’re looking at two different values,” he says. “The institutional investor or even the private investor that doesn’t farm it himself – he’s looking at a return on his money. Where the farmer not only is looking at that but he’s also looking at it that – ‘This may never come up for sale again.’”

Molly Messick / StateImpact Idaho

Snake River Plain farmer Klaren Koompin shows off Koompin Farms' main crop: potatoes. The pile behind him is massive, 6.5 million pounds.

Koompin says that what investors have done is set a floor, guaranteeing that local farmers will have to pay top dollar. But he refuses to see investor interest as a bad thing, and he doesn’t believe the farm economy is headed for a crash. “Am I concerned for what’s going to happen in the future? No. There’ll be lots of opportunity. And if you’re smart enough to figure out where that opportunity is, then you’re going to be just fine.”

Koompin isn’t alone in his optimism. Analysts who keep a close eye on farmland prices nationwide point out that the market for farm ground doesn’t rely heavily on credit, the way the housing market did during the boom. Plus, they say, there’s a basic and unyielding demand for food. Nevertheless, the Federal Reserve did send a memo to lenders this fall, reminding them of risks including falling crop prices and land values.

The air is cold and it’s long past nightfall by the time LaMar Isaak and his family return from the pasture. Isaak says he isn’t only concerned about whether investor interest is pushing land prices too high. He’s concerned about something that’s even harder to size up: what it means for a farmer to farm if he doesn’t own his land. “I wouldn’t want to do it,” he says. “Pretty simple.”

For Isaak, farming isn’t only about labor and output. It’s about generations working together, linked by collective care for family land. The idea of tenant farmers renting from far-flung investors is hard to accept. “It just – it takes my whole value system and shoves the box upside down. I have to rethink everything I do. And that’s not comfortable.”

The Snake River Plain has seen its share of consolidation. The ground the Isaaks farm used to be owned by fourteen different farm families. But investor ownership — that’s one more step away from the tradition LaMar Isaak holds dear.

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StateImpact Idaho was a reporting project of Boise State Public Radio and NPR focused on explaining how economic issues affect you. For continued coverage of Idaho’s economy, tune into KBSX 91.5 or visit Boise State Public Radio's website.